Following Softbank's announcement that it plans to purchase 70 percent of Sprint Nextel (NYSE:S) for $20.1 billion, speculation started to rapidly swirl about whether Sprint would buy partner Clearwire (NASDAQ:CLWR). According to a Bloomberg report citing unnamed sources, Sprint has no immediate plans to do so.
The report said that Softbank and Sprint's priority at this point is getting their multi-stage deal finalized and approved, which is expected to happen by mid-2013. The report also said that until the deal is completed, Softbank and Sprint cannot take part in "extraordinary activities" such as further mergers or acquisitions.
Sprint and Clearwire declined to comment, according to Bloomberg.
Despite assurances that the transaction does not require Sprint to take any actions involving Clearwire "other than those set forth in agreements Sprint has previously entered into with Clearwire and certain of its shareholders," analysts and investors immediately began positing when--not if--Sprint would take control of Clearwire, in which it holds a 48 percent stake. Shares of Clearwire stock shot up 15.5 percent in midafternoon trading Monday at $2.68 before dropping back down to $2.35 per share Tuesday morning.
"I think the probability is very high that Clearwire won't be a standalone company a year from now," D.A. Davidson analyst Donna Jaegers told Dow Jones Newswires. Jaegers said Clearwire shareholders will need to determine what might be a "fair price" for a Sprint takeover.
Many industry analysts believe Softbank may be looking to boost the 2.5/2.6 GHz TD-LTE ecosystem. Clearwire is using that spectrum and technology for its LTE buildout, and plans to launch LTE service next year. Sprint has said its LTE devices will be able to run on its FDD-LTE network as well as Clearwire's TD-LTE network, and Sprint will offload excess traffic onto Clearwire's network. Clearwire has around 120 MHz of spectrum in many markets across the United States and Clearwire plans to use carrier aggregation technology in its forthcoming TD-LTE network to meld together it spectrum holdings into 40 MHz-wide channels.
"We believe that Clearwire will play a critical role in Softbank's plans to aggressively compete with AT&T and Verizon in the United States," wrote BTIG analyst Walter Piecyk. "Clearwire's depth of spectrum paired with Sprint's network and customer scale and Softbank's cheap capital will enable the companies to offer faster speeds and more capacity than their rivals. Sprint would be wise to take control of Clearwire as soon as possible in order to protect that differentiation but in recent history Sprint has been slow to act, allowing their peers to poach opportunities."
Piecyk noted that an acquisition of Clearwire would be difficult for Sprint given the complicated nature of Clearwire's 2008 shareholder agreement, but he also said it would be tough for any of Sprint's competitors given Sprint's 48 percent stake. "Nevertheless, Sprint might regret leaving any risk that a competitor could poach Clearwire at a later date, especially if the later interest is a result of Sprint's success in executing a more aggressive differentiated strategy with the 2.5 GHz spectrum while Softbank and China Mobile further legitimize the 2.5 GHz ecosystem in Japan and China, respectively," he wrote. "Of course, this would not be the first time that Sprint made a strategic decision that we did not fully understand."
Meanwhile, more details continued to emerge about the deal. According to Reuters, Sprint or Softbank would need to pay up to $600 million in termination fees if either party backs out of the deal. Sprint is also on the hook for up to $75 million if its shareholders do not approve the deal.
For more:
- see this Bloomberg article
- see this NYT article
- see this Dow Jones Newswires article
- see this BTIG blog post (reg. req.)
- see this separate Bloomberg article
- see this Reuters article
Special Report: Softbank to take control of Sprint: Complete coverage
Related Articles:
Analysts: Softbank's deal with Sprint benefits U.S. wireless market
Softbank to buy 70% of Sprint for $20.1B
Analysis: A Softbank buyout would give Sprint cash, improve TD-LTE ecosystem
Can Japan's Softbank reinvigorate Sprint?
Sprint confirms Softbank in talks to take control